Tuesday, April 09, 2019

statements about patent license status can violate Lanham Act's false advertising provisions

Au New Haven, LLC v. YKK Corp., No. 15-cv-3411-GHW-SN, 2019 WL 1437516 (S.D.N.Y. Mar. 31, 2019)

Au holds the patent to a water-resistant zipper, and YKK had an exclusive “field of use” license that it allegedly exceeded, resulting in this lawsuit for patent infringement, breach of the license agreement, deceptive marketing under the Lanham Act, and deceptive practices under the Connecticut Unfair Trade Practices Act.

In this summary judgment ruling, the court found that patent invalidity was subject to disputes of material fact, as did infringement. Breach of contract failed because the “the license only gives permission to sell into the non-excluded markets and does not contain a corollary prohibition of sale into the excluded markets,” though it would hold oral argument on the question of whether the implied covenant of good faith and fair dealing implies a covenant not to compete in a patent license. Au had the burden to “prove not merely that it would have been better or more sensible to include such a covenant, but rather that the particular unexpressed promise sought to be enforced is in fact implicit in the agreement viewed as a whole.” “Given the absence of an express promise by the licensee, and the protections otherwise afforded to Plaintiffs by patent law in the United States and abroad, the Court harbors serious doubts that Plaintiffs can meet that burden,” but the court didn’t make a final ruling.

Lanham Act claims: There were triable issues on laches, a fact-intensive issue. Au delayed filing suit for many years, but the parties also made years-long efforts to come to agreement on a new license.

YKK argued that the challenged statements weren’t commercial advertising. Though the challenged statements weren’t pure commercial speech, that meant that a jury would have to address “factors such as whether the communication is an advertisement, whether the communication makes reference to a specific product, and whether the speaker has an economic motivation for the communication.” The motivation in particular was a disputed material fact.  [I think the real issue is whether the challenged statements were “commercial advertising or promotion,” a subset of commercial speech.]

“The challenged statements, while not literally false, do falsely imply that YKK had an unlimited license.”  YKK argued that implied falsity requires a consumer survey, but intentional misleadingness can substitute for survey evidence. A statement about YKK’s right to sell the zippers also  involved “an inherent or material quality of the product.”

Connecticut Unfair Trade Practices Act: Not time-barred; CUTPA has a three-year statute of limitations. The first allegedly misleading statement was made in 2003, but Connecticut doesn’t “insulate standardized or repeated unfair trade practices from challenge once they had been instituted for three years.” So Au could reach back three years from before it sued, and some of the statements were re-made within that period.

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